The Stretch IRA is Dead. Does That Mean More Freedom?

If you’ve been staying on top of retirement news over the past 12 months, then you’ve probably read about the passage of the SECURE Act and it’s termination of the stretch IRA as an estate planning tool. Just a quick refresher, but a stretch IRA was an IRA inherited by a beneficiary in which the beneficiary then took required minimum distributions (RMDs) according to his/her life expectancy and not that of the original IRA owner. If the IRA was inherited by a young beneficiary, that meant the funds could grow, possibly over decades, before the inheriting beneficiary reaches 72 and has to start taking RMDs. The SECURE Act got rid of that and replaced the Stretch IRA with a 10 year rule, which means that the money in the inherited IRA must be emptied by the 10th year after inheriting. Of course, if there is money left over, it will be penalized by the IRS (what else is new, right?). This might seem like a hassle, but it can actually allow a lot of freedom, particularly in regards to when you take the money. Over that 10 year period, you are not required to take money every year. Now, you could do that if you wanted, but you could also take distributions 8 out of the 10 years or 5 out of 10 years. This can open up a lot of opportunities to adjust your financial and retirement plans and use the money at your discretion. All that matters is the account is empty by year 10. Of course, if it’s a Roth IRA, the money is already taxed, which is an added bonus. If you have questions about the 10 year rule or it appears that you may inherit one on the future and want to start planning what to do with the money, you should speak with a certified financial planner or wealth manager.